Airfare wars hits Flight Centre profits

FLIGHT Centre has cut its full-year profit guidance after suffering a 36 per cent fall in half-year net profit as “unprecedented” airfare discounting, economic uncertainty and foreign exchange fluctuations hit its bottom line.

The travel bookings company’s shares had fallen more than six per cent to $28.30 on Thursday morning, after it reported a fall in half-year profit to $7.4 million while revenue was marginally down 0.6 per cent to $1.25 billion.

The decrease came despite record ticket sales in Australia, where volume outpaced market growth and total transaction value (TTV) topped $5 billion for the first time.

Flight Centre said first-half ticket sales increased strongly in the six months to December 31 but average international fares decreased by seven per cent, while domestic fares fell four as both major airlines and low-cost carriers discounted fares.

As a result, first-half earnings dropped 10 per cent for Australia, while lower earnings from the Asia, Middle East and UK-based tour businesses also contributed, with a $12.5 million decrease in first-half profits.

Flight Centre announced a downgrade of its full year underlying pre-tax profit guidance, cutting it to $300 million-$330 million from $320 million-$355 million previously.

“We are not yet seeing tangible evidence that the factors that affected 1H profits are abating quickly and that the benefits will flow through during FY17,” managing director Graham Turner said.

“To improve short-term performance we will instead focus on factors that are within our control, specifically increasing market-share, enhancing productivity, improving performance and implementing sensible cost control measures.”

The travel bookings company anticipates more rapid TTV growth and a more stable trading environment heading into the second half of the year. It declared a dividend of 45 cents per share, fully franked.

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